Government of Money
In Yelbatin a long time ago, everyone wanted gold, and everyone was willing to accept gold in exchange for goods and services. Some gold was held in private hands, but most gold was deposited in a central vault controlled by the government, which issued gold notes that were used as currency. The note was simply a piece of paper saying that the bearer owned a certain amount of gold stored in the Vault. The Vault of Yelbatin was not a bank. It did not make loans. It was simply a storehouse for gold. But private banks did exist and did make loans. The difference was, they did not store gold; they only stored gold notes: their own and those of their depositors. Bank notes were issued by these private banks and were also used as currency. These notes entitled the bearer to get gold notes from the bank. Banks made loans charging interest by issuing additional bank notes. Eventually the paper gold notes were replaced, one for one, with digital notes. Banks continued to issue paper notes, along with their own digital notes, but the government went entirely digital because it was cheaper and more secure. No gold note would ever again be lost by anyone and need to be re-issued, nor ever again be stolen from anyone. What's more, the government made the digital gold notes "open source," and relinquished all government control of the software. The government would continue to honor the digital gold notes because the software was now protected by the entire digital network community. Over time it came to pass that all the gold in Yelbatin had been mined and deposited in the Vault. Even the private holders of gold had put nearly all of theirs into the Vault of Yelbatin in order to get digital gold notes that they could deposit in the investment banks to earn interest. There was no more gold to be had, from any source. Then one day, a strange event occurred within the government compound that secured the Vault. A great sinkhole opened up quietly and the Vault sank far into the earth, all the way down to a great subterranean sea of molten lava, far below Yelbatin. The gold was quickly melted, mixed and dispersed among worthless substances. Fearing a panic, the government tried to keep this event a secret. At first, this was not difficult, because it was a very rare thing for any citizen of Yelbatin to ever bring a gold note to the compound and ask to redeem it for some gold. That did happen eventually, of course. One day, for example, a wealthy citizen wanted to build a gold statue at his home. But the first few times such a thing happened the government had a way of dealing with it. Whenever a citizen asked to redeem gold notes for gold, the government simply took him to a room, sat him down, and showed him a startling video. "Quite some time ago," the government explained, "a great sinkhole that you see opening here swallowed your gold and everyone else's, so it isn't available for us to give to you. It's still 'here', though, in a very real sense. It's somewhere far down below, where we can't reach it until, perhaps, the molten rock congeals and salvage operations are able to mine it. We've been keeping this a secret in order to protect the currency value of the gold notes that we have issued to the citizens of Yelbatin. And now, we are asking for your help. You can walk out of here and announce to everyone that a sinkhole has swallowed all of the Vault's gold. It's a free country, after all. But if you do that your own gold notes and those of your friends and your family and your fellow citizens could be rendered worthless. We appeal, therefore, to your self-interest as well as to your regard for the economic well being of your family, friends and fellows. Please help us keep this quiet." This worked, but only for a while. Then, that wealthy citizen who wanted to build a gold statute came along. When told the story, he agreed to say nothing about it publicly for a while, but then he promptly went out and used all of his gold notes to buy silver, and he told his family members and closest friends to do the same. The price of silver rose. Rumors began to swirl. Within a few weeks the cat was out of the bag. And then happened the strangest thing of all. Nothing. The people of Yelbatin continued to use their gold notes as currency. When the news broke about the sinkhole, the government simply countered by announcing that the gold was still there in exactly the same quantity as before and still belonged to the holders of the government-issued gold notes. It was just in a different, molten form. It was true that nobody could get at it, but what difference would that make if nobody ever needed to get at it? No more gold statues, of course, but the primary value of the gold was as money in the form of gold notes, and the gold notes hadn't melted and would always circulate in the exact same quantity as before, so they still had value as currency.